In a year when DVD sales are falling and studios are facing major shakeups in their executive ranks, Hollywood is beginning to look a lot like one of its own slasher films, the Los Angeles Times noted recently. Amid all the turmoil, however, there is at least one success story in the movie industry: Netflix.
Founded in 1997, Los Gatos, Calif.-based Netflix made a splash in the movie rental business by offering an online subscription model with a flat monthly fee for unlimited rentals and no late charges. Since then, despite a recession, fierce competition and the emergence of online video delivery, the company continues to thrive. According to experts at Wharton, Netflix is now in a race to transition to a business model focused on streaming content online, while continuing to exploit its current model based on physical DVD distribution via the U.S. Postal Service. "You would think that Netflix would be entrenched in its old model and fighting off digital distribution, but it is embracing the future," says Wharton marketing professor Peter Fader.
While many companies see the need to develop new business models as older, more profitable ones erode, not all of them deftly manage the transition. For years, Netflix has been mailing DVDs to subscribers in its recognizable red envelopes, but in 2008 it introduced a "Watch Instantly" service that allows consumers to stream movies on their home computers. Since then, the company has forged a bevy of partnerships to embed its Watch Instantly service in television sets, game consoles such as the Xbox, Blu-ray DVD players and set-top boxes. In its latest move, on October 26, the company announced a partnership with Sony to deliver its streaming service via Sony's PlayStation 3 game console, nine million of which have sold since it was first introduced in 2006.
Netflix had 11.1 million subscribers through the third quarter ended September 30, up from 8.
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